By 2 Cents on September 26th, 2011 | Category: Economics |  Wisdom is knowing what to do next; virtue is doing it.
~David Star Jordan
It’s funny how rather complex issues can sometimes become a little more clear by accident. One of the spelling riddles I sometimes come across when I’m writing is the difference between principal and principle. Unlike other words like favourite and favorite, this is not simply a matter of unique international spelling conventions. Principal and principle actually have completely different meanings.
Principal vs. Principle: What’s the Difference?
According to my trusty dictionary, principal can refer to:
a school administrator something or someone of first rank or importance capital bearing interest
Principle, on the other hand, is:
a fundamental truth, or doctrine on which others are based rules of conduct or ethical behaviour Who Cares?
I’m sure some of you can already see where I’m going with this. It’s not about spelling [...]
Read on and enjoy … Too Much Principal and Not Enough Principle
By 2 Cents on August 15th, 2011 | Category: Investing |  Continuity gives us roots; change gives us branches, letting us stretch and grow and reach new heights.
~Pauline R. Kezer
My computer will be packed and we will probably be en route for stage one of the move by the time you read this. It’s unfortunate that this geographical move is coinciding with more historical economic and market moves. I wish I could follow it all a little more closely. Alas, life happens.
The good news is that if you’ve been reading BJ for the past year or so, you weren’t lulled into complacency by the 2009-2011 rally. To borrow a metaphor from David Rosenberg, you knew that the rally was a house of straw rather than bricks. Hopefully, you managed risk accordingly.
Besides the market, I’ve been short on time, sleep, and as a result, brain power. So I’ll use today’s [...]
Read on and enjoy … On the Move
By 2 Cents on August 8th, 2011 | Category: Investing |  Poetry is nearer to vital truth than history.
~Plato
In our recent discussions about the Couch Potato style of investing, I mentioned that this strategy relies on historical market returns. I pointed out that including a component that reflects valuations might improve the strategy. This is basically the Valuation Informed Indexing approach about which Rob Bennett often writes.
I mentioned in my last post that I like to look at historical data regarding market performance and valuations, but that I didn’t want to rely on it completely. I’ll explain my thinking here and you guys can let me know what you think.
Past Performance Is Not Indicative of Future Results
“History is a vast early warning system.” ~Norman Cousins
One of the [...]
Read on and enjoy … History Only Rhymes
By 2 Cents on August 7th, 2011 | Category: Investing |  It was widely rumoured around trading desks on Friday that S&P would downgrade the U.S. credit rating, stripping its coveted AAA status. Many dismissed the rumour. After the markets closed, it happened. Now what?
I have no idea what will happen when markets open tomorrow morning. It seems like there’s a pretty good chance of another major sell-off, although the market seems a lot more concerned about the situation in Italy than the U.S. debt downgrade. So far, Middle Eastern markets have opened down sharply, but they weren’t open on Friday, so they could just be playing catch-up.
On the optimistic side, it’s possible that the ECB will come up with something that (at least temporarily) calms the market’s concerns about the European debt crisis. According to some, there’s even a chance that markets could enjoy a kind of “sell the news” rally in the wake of the [...]
Read on and enjoy … What Happens Monday?
By 2 Cents on July 13th, 2011 | Category: Economics |  I am more afraid of an army of one hundred sheep led by a lion than an army of one hundred lions led by a sheep.
~Charles Maurice, Prince de Talleyrand-Périgord
When the financial crisis erupted in 2008, many questioned the leaders and regulators in place at the time. How could the global financial system be humming along one minute and completely bankrupt the next? Clearly, those in charge either made some very questionable decisions or failed to inform the public of the potential consequences of those decisions. Most likely it was both.
When it came to constructing solutions for the crisis, however, we continued to listen to and implement the ideas of the same people who brought us to the brink. In turn, those people followed policy prescriptions similar to the ones that got us into trouble in the first place. Were there no other options available? [...]
Read on and enjoy … How the Leadership Void Feeds the Financial Crisis
By 2 Cents on July 1st, 2011 | Category: 20 Cents |  It’s been a busy couple of weeks as my son had a significant surgery on his leg last week. Caring for him afterwards has been a round-the-clock job. I hope to be able to jump back into writing a little more in the coming weeks, although we have our big move looming as well. I’ll do my best to keep up with my one post a week minimum and add in a few bonus articles when I can. In the meantime, I did manage to find some good thought-provoking articles from around the web this June. Enjoy!
1. In an article published in the Washington Post, Barry Ritholtz of The Big Picture blog shared 7 Life Lessons from the Very Wealthy. This one is well worth a few minutes of your time.
2. What If 8% Is Really [...]
Read on and enjoy … 20 Cents from June 2011
By 2 Cents on October 8th, 2010 | Category: Book Reviews |  This is not just a symbolic black mark. The markets rely on investor confidence, and when that is shaken the results are recorded in tangible declines on balance sheets.
~ Maria Bartiromo
A couple of weeks ago a representative of the public relations firm handling CNBC anchor Maria Bartiromo’s new book sent me an email asking if I would care to review it. I quickly agreed, but my interest stemmed more from a curiosity about the tenor and approach the book would take rather than its actual contents. The book is called The Weekend That Changed Wall Street: An Eyewitness Account. It’s about that fateful September weekend a little over 2 years ago when the 158-year-old financial icon Lehman Brothers declared bankruptcy, sending global financial markets into a panic.
Before I read the book, I wondered whether it would offer substantive information about the financial crisis. Given [...]
Read on and enjoy … Book Review: The Weekend That Changed Wall Street
By 2 Cents on August 27th, 2010 | Category: Book Reviews | If there is one common theme to the vast range of crises we consider in this book, it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. Infusions of cash can make a government look like it is providing greater growth to its economy than it really is. Private sector borrowing binges can inflate housing and stock prices far beyond their long-run sustainable levels, and make banks seem more stable and profitable than they really are.
~ Carmen Reinhart & Ken Rogoff, This Time Is Different
The subtitle of This Time Is Different indicates that the book covers “Eight Centuries of Financial Folly”, but its release date (September, 2009) makes it extremely relevant to our most recent and ongoing bout of financial folly. In fact, the authors devote the final four [...]
Read on and enjoy … Book Review: This Time Is Different
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